The year in a nutshell

The continued combination of tough market, operating, economic and social conditions has rightly spurred Implats towards a fundamental review of aspects of our business model and in the nature of our relationships. Implats has adopted a “lower for longer” view to navigate the difficult period where PGM prices remain low in the near term. This resulted in a detailed strategic review which was conducted and communicated to the market in February 2015, with the aim of positioning the Group strategically to conserve cash in the near term, while at the same time restoring operational performance and profitability.

Following the strategic review, a detailed operational response plan premised on the lower-for-longer metal price has been developed. Key strategic objectives remain:

• Maintaining prudent investment through the cycle
• Maintaining strategic optionality and positioning the Group for the future
• Improving efficiencies/profitability through operational excellence and safe production
• Conserving cash, especially while metal prices remain depressed
• Maintaining Implats’ social licence to operate

Through taking decisive action in this way, we have not only endeavoured to strengthen our balance sheet and optimised our business units for the current price environment, but have also secured continued investment into key projects that will deliver long-term value.

The PGM market

The situation in the global resources sector is particularly bleak – the price of oil alone has halved in a year – causing some pain in the commodity-producing powerhouses of the world, including South Africa. Global uncertainty is also evident in the strengthening of the US dollar. However, the market fundamentals for PGMs remain sound, despite the prevailing low platinum price, and these metals will continue to add value to a growing global economy by reducing emissions and providing alternative energy solutions.

Emerging markets form the core of the increase in PGM demand. While China has undoubtedly entered a period of significant economic slowdown, urbanisation in China and India will continue and so will the growth in the middle class, with the concomitant increase in consumer spend. The US economy, meanwhile, is pointing to ever strengthening fundamentals that should help it weather slowing global demand. In the rest of the world, growing automobile sales and stricter emission controls will support future PGM demand in the medium to long term, with the early signs of an emerging hydrogen economy providing longer-term support.

The challenges confronting South African PGM miners are significant and in our view will constrain supply in the future. The supply side issues prevalent during the year included the impact of the operational ramp-ups to full production at various producers affected by the labour strike in 2014; safety stoppages; limited access to power; low metal prices; and reduced capital expenditure. Despite our long-term PGM market view, near-term metal prices continue to be negatively affected by a number of global economic factors, specifically Chinese economic contraction and the risk that global economic growth could be further affected by geopolitical conflict and/or currency uncertainty.

We forecast increasing global demand for these metals as well as fundamental deficits in PGM metals over the medium to long term – both very positive developments for the sector as a whole – despite the near-term metal prices remaining vulnerable to perceptions around non-visible metal inventories and an uncertain global economic outlook.

We continue to support industry bodies that are actively promoting the broader use of PGMs, boosting demand for platinum bridal and non-bridal jewellery demand in China and India, developing exchange traded funds (ETF) investments in diverse geographical locations and growing investor demand, and we welcome the growth in the fuel cell market.

The regulatory environment

The regulatory environment in which we operate remains highly uncertain due to changes to the Mining Charter and the Broad-Based Black Economic Empowerment Act and certain sections of the Labour Relations Act. Complying with changing regulation while trying to meet the imperatives of the National Development Plan (of which mining is a key element), the Industrial Policy Framework as well as the Deputy President’s Framework Agreement remains challenging.

Project Phakisa, which is focused on the mining industry, will give us the opportunity to feed into a high-level discourse on the overlapping regulatory and practical demands on the industry and presents a timely opportunity to optimise the mining industry. I sincerely hope that the recent change in Ministerial leadership in the DMR will not lead to any loss in momentum as the new Minister gets to grips with the very severe challenges currently confronting the South African mining sector.

A continuing challenge for the Group has been the number of section 54 safety stoppage instructions issued by the DMR. Implats supports all work stoppages where there is a direct danger to the safety or health of our employees. However, the somewhat reckless issuing of section 54 stoppages extending beyond the scope of the risk is problematic and severely compromises the sustainability of profitable mining in the country which is essential for the mining sector to provide employment that our country so badly needs. The Group continues to actively engage the DMR to highlight the impact of these stoppages on both safety and productivity/profitability, especially in an environment where we remain totally committed to zero harm and the need to preserve jobs in this current cyclical downturn.